Employment and trade hit dollar
April 9th: Highlights
- Weak employment headline masks higher wage inflation
- Sentiment beginning to build against further sterling gains
- Euro drifting as markets accept no hike this year
Dollar index hit by weak data
The effect on the dollar was initially muted but when considered in addition to the concerns over an escalation of the trade dispute with China, it fell to a low of 90.07.
The incomes section of the report is a little more predictable. It showed, as expected, that wage increases rose by 2.7% in March. This will retain the interest of the Federal Reserve but isn’t sufficient to warrant a further rate hike in the short term. A rate of increase closer to 3% will be needed to re-introduce thoughts of four rate hikes this year.
President Trump’s fierce rebuttal of China’s retaliation over the tariffs on import of Chinese steel into the U.S. has raised concerns of an escalation into an all-out trade war. Trump is threatening further tariffs on Chinese goods which China says will be met with a “fierce counter strike”.
Sterling struggling to regain 1.4100
Now, that glow appears to be fading as the data has not been as encouraging as it was expected to be, the rate hike is not yet “nailed on” and the Northern Irish border issue which it was hoped had been agreed at the time of the transition agreement rumbles on.
The index of services activity which was released on Thursday showed a fall to 51.4 from 54.00 in February. This could have been a blip caused by the cold weather but there is also a concern that this marks the start of the move of financial services to Europe as preparation for Brexit.
It is assumed that Brexit talks are continuing behind closed doors and there is definite optimism driven by a sense of “no news being good news”. This has rarely been the case, despite agreements being reached along the way. It is the issue of how the border between the North and South of Ireland that is starting to bring concern. The position of the two sides and the threat from both the Republic and the Province, if their desires are not met, could lead to the collapse of the entire process.
Euro lacking fresh impetus
Considering that monetary policy has become the major driver of most if not all of the G7 currencies, it is remarkable that the single currency has managed to remain above its long-term support at 1.2160. This level has become a “line in the sand” for traders and while it remains unbroken, the euro retains positive sentiment. It closed on Friday at 1.2291 following the U.S. jobs report and has remained at a similar level this morning.
Mario Draghi’s recent comments on monetary policy have convinced the market of the fact that he is more realist than dove and his pragmatism means that he won’t allow rates to be raised simply because other G7 Central Banks are doing so or there is a case for a pre-emptive hike.
Sr. Draghi won’t be around forever, his term ends in November next year, and there are concerns that his “considered” approach may be replaced by a wholly different methodology, particularly if Germany gets its way and the Bundesbank President Jens Weidmann takes over at the helm.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”